concept

Concept means an idea or thought

Accounting concepts
are
fundamental ideas / basic assumptions underlying
the theory & practice of accounting
Developed over a period of time

in response to

changing business environment

 benefits
Helps in identifying transactions
to be recorded

Helps in conveying same meaning to all end

users of accounting information

Helps in bringing about uniformity in accounting

practice
Accounting concepts
 Money measurement concept
 Separate entity concept
 Going concern concept
 Cost concept
 Dual aspect concept
 Accounting period concept
 Objective evidence concept
 Realisation concept
 Accrual concept
 Matching concept
 Money measurement concept
Or
common denominator concept

Only monetary transactions are to be recorded

Separate entity concept

Business and entrepreneur

has separate identity

in the eyes of law

Going concern concept
 Business is regarded to continue for a long
time

 That is why we have concepts of fixed assets

 ( considering it at C.P), depreciation, taking
loans from outsiders
Cost concept

 F.Assets  recorded at cost price (less)

depreciation

 C.Assets  recorded at cost price/ market

price (whichever is less)
Dual aspect concept

There are 2 aspects for each transaction

Every debit has a corresponding credit

Accounting period concept
 Is the accounting year

 It may be the calendar year

Or

 Generally from 1st April to 31st March

Objective evidence concept
All accounting entries

should be supported

by source documents

like invoices / vouchers

Realisation concept

Revenue considered realized

Only when
Goods/ services are transferred to customer
And customer becomes legally liable
to pay for them
Accrual concept

 Revenue accrues in that year in which they

are earned (whether received or not)

 expenses accrues in that year in which they

are incurred (not in the year actually paid)
Matching concept

 For calculating profit

 Revenue and expense is matched

 Net profit  revenue > expense

 Net loss  expense > revenue
 Accounting conventions

Customs/ practices which have been in

force for a long time
which guide
accountants to prepare financial
statements
Accounting conventions
 convention of materiality

 convention of conservatism

 convention of consistency

 convention of full disclosure

convention of materiality

Detailed record

made of only those transactions

which are material / significant

to users of accounting information

e.g. small piece of stationary
convention of conservatism
 Policy of playing safe

 Provide for all possible/ prospective losses,

risks

 Anticipate no profits/ prospective profits to be

ignored
convention of consistency

Accounting practices/ methods

should remain consistent

from one accounting year to another

e.g. method of recording depreciation

convention of full disclosure

Material facts

must be disclosed in financial statements

with sufficient details

 Concepts Conventions

Assumptions based on Customs/ usages/ tradition

which business based
transactions are recorded
every business must adopt Need not follow same
same concepts conventions